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ABI Inches Forward in August

Economic downturn has led to increased project cancellations and delays at architecture firms

By Jennifer Riskus

The AIA’s Architecture Billings Index (AIA) score continued its recent upward climb in August, growing by nearly half a point to 48.2, the highest score in four months. Billings at architecture firms are still declining, but are now doing so at a very slow pace. The ABI score has increased for each of the last three months and it seems likely that as a profession, firms should begin seeing growth in the near future. Inquiries into new projects remain strong, as they increased for the thirteenth consecutive month in August.

Architecture firms in the Northeast reported a slight improvement in business conditions in August, the second such bump above the 50 point threshold in the last five months. It’s uncertain yet whether the growth will be sustained, but it is an encouraging sign of impending recovery. In addition, firms in the Midwest reported a score of 49.2 this month, indicating that growth may be imminent there as well.

Firms with a commercial/industrial specialization reported billings growth for the fourth consecutive month in August, although these gains remain extremely modest. Business conditions at firms with a residential specialization have continued to decline after reporting minimal growth at the beginning of the year, and declines are ongoing for firms with an institutional specialization as well.

While overall payroll employment declined in August, the private sector continued to expand, adding 67,000 new jobs. In addition, architecture firm employment has grown for two consecutive months, reaching a total of 166,700 jobs in July (the most recent data available). Although this is still 24 percent off the most recent high of 220,500 jobs in July 2008, it is an increase of 2,500 jobs over the most recent low point in March. The Federal Reserve’s most recent Beige Book report, released in early September, indicates that economic growth persists, but that the pace has been decelerating recently. Consumer spending is up and the manufacturing sector continues to expand, but home sales have slowed since the expiration of the housing tax credit earlier this year. And while this has led to a slowdown in construction activity, residential construction has actually been improving in several cities, including the Cleveland, St. Louis, and Minneapolis districts. On the other hand, rents for commercial, industrial, and retail facilities declined in the New York and Kansas City districts in recent months.

One of the effects of the economic downturn has been an increase in the number of projects at architecture firms that have been either permanently cancelled or significantly delayed. Eighty-three percent of ABI panelists report that design projects under contract at their firms have been either cancelled or delayed in the last two years. Nearly half of those firms (49 percent) report that 10 percent or more of their design projects have been cancelled outright. This is in contrast to a typical two-year period where more than 80 percent of firms indicate that fewer than 5percent of their projects have been cancelled. In addition, firms in the Midwest and West regions of the country are reporting a higher share of cancellations than firms located in the Northeast and South.

Architecture firms are also reporting that the share of design projects under contract that have been significantly delayed (but not cancelled outright) has increased in contrast to a comparable non-recession period. Thirty-eight percent of respondents indicated that 20 percent or more of their projects have been delayed, compared to just 3 percent who indicated that that level of project activity would be delayed in a typical two-year period. Project delays are most likely to occur during the design development phase, while outright cancellations are most common during the schematic design phase.

 
 


     

This month, Work-on-the-Boards participants are saying:

    Business is slowing once again after a pickup in the spring. Public spending has slowed the most, with some increased activity in the private sector, although mostly for modest scale projects.—17-person firm in the Midwest, institutional specialization

    A few developers have come forth to develop new projects in hopes that in 12 to 16 months they will be ahead of the industry when the economy improves.—4-person firm in the South, commercial/industrial specialization

    • RFQs and RFPs have picked up significantly over the past two months and more projects seem to be moving into design phases.—220-person firm in the Midwest, institutional specialization

    Conditions continue to be very slow. We have seen an increase in inquiries, and we have secured some work abroad. The sectors that show signs of life are government [at] all levels, medical, and senior living.—8-person firm in the West, mixed specialization

To help AIA members weather the economy, AIA.org features a Navigating the Economy page.

Let your voice be heard! As an AIA member and firm leader you are invited to join the ABI survey panel.

Recent Related:

Architecture Billings Index Climbs by Two Points in July

Business Conditions Weak But Improving at Commercial Firms

ABI Slips Slightly in May as More Firms Experience Softening Business Conditions

Business Conditions Continue to Show Progress in April ABI

 

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